The Goldsmith Charitable Foundation, which is tax-exempt, issued debt last year at 9 percent to help finance
Question:
The Goldsmith Charitable Foundation, which is tax-exempt, issued debt last year at 9 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 25 percent higher; that is, firms that paid 11 percent for debt last year will be paying 13.75 percent this year.
a. If the Goldsmith Charitable Foundation borrowed money this year, what would the after-tax cost of debt be, based on their cost last year and the 25 percent increase?
b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 25 percent because of involvement in political activities), what would the after-tax cost of debt be?
Step by Step Answer:
Foundations Of Financial Management
ISBN: 9781260013917
17th Edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen